Weekly Market Report – 29.04.2018

Market Summary

Asia

Asian markets ended a choppy week on a high note, rising broadly as investor sentiment ticked higher on news from Korea that a complete denuclearization of the peninsula was in the works by North and South Korean leaders. The news was a result of the historic meeting of South Korean president Moon Jae-in and North Korean leader Kim Jung Un, who became the first North Korean leader to cross the DMZ into the South since the Korean war. The days’ gains put the Kospi into positive territory for the week, with a 0.7% weekly gain. Australia led the region for the week, with the S&P/ASX 200 gaining 1.4%; but Japan’s Nikkei wasn’t far behind, as it added 1.3% in response to significant weakening of the Yen against the U.S. dollar. Chinese markets were pressured all week due to U.S. sanctions on tech companies, with mainland China’s Shanghai Composite gaining 0.4% on the week, but the Hang Seng in Hong Kong falling 0.4%.

The coming week could be an excellent one for Asian markets. The announced denuclearization of the Korean peninsula is extremely positive, and markets have only begun to price in a peace dividend. While technology concerns still linger, the Korean news should overshadow that, at least to start the week. The Yen promises to continue softer in the face of higher U.S. Treasury yields and a lack of safe haven demand, and this should help the Nikkei continue to make strides higher. Australia has seen its banks beginning a recovery, but there still remain questions over improper and illegal behavior from the banks; so things could remain choppy down under.

Europe

European markets continued higher for a fifth consecutive week, although gains were muted for the broad based Stoxx Europe 600, which was higher by 0.7% for the week, and even more so for Germany’s DAX, which gained just 0.3% for the week. The CAC 40 in France was stronger, adding 1.4%; but the best gains came from the U.K.’s FTSE, which rose 1.8% last week, as the Pound plunged to a seven week low against the U.S. dollar.

The coming week should remain strong for equities as corporate results will continue rolling in and are most likely going to remain strong. The Euro and Pound should also continue in their retreat against the U.S. dollar, with the chance of the ECB removing its QE bond buying nearing zero and the chance of an interest rate hike in the U.K. next month quashed on Friday following the weaker than expected U.K. GDP data.

US

U.S. markets ended the week on a lackluster note, with small gains and losses, even after three large cap technology companies reported better than expected earnings. It’s a recurring theme so far this earnings season, as investors seem unimpressed by the solid earnings that continue to roll in. For the week, the Dow Industrials fell 0.4%, the Nasdaq lost 0.3%, and the S&P 500 edged lower by just 0.01%. Still, it was enough for all three major indices to post a weekly loss for the first time in three weeks.

We fear the upcoming week won’t be much better, as investors seem immune to the good earnings being posted by most companies this quarter. And that doesn’t bode well for the end of earnings season, when investors will have nothing to help bolster their mood and we could see markets enter a bleak summer season.

Gold/Crude Oil

Gold slipped lower by 1.1% last week, with the stronger U.S. dollar and rising U.S. Treasury yields combining with falling geopolitical risks to weigh on the precious metal. Even so, it showed some resilience, rising some days modestly in the face of the stronger U.S. dollar. The coming week could see further weakness for gold as the peace efforts on the Korean peninsula will mute haven demand further, and there are no fundamental signs that indicate the U.S. dollar will begin to soften in the coming week.

Crude ended the week basically flat, rising 0.2% Thursday and falling 0.1% on Friday. Traders are mixed with the potential for U.S. sanctions against Iran giving crude a boost, but the stronger U.S. dollar and signs of increased supplies weighing on the commodity. The coming week could see more downside pressure for crude, especially if the tensions surrounding Iran evaporate. After the strong April gains, traders will likely be ready to take profits on any signs of weakness.